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I am a student and have an assignment question

Prepaid assets

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 What type of business would have a significant amount of prepaid assets? I need to make an example and explain what these prepaid assets would be.

I am struggling to think of examples. Can you help pls? 

Many thanks in advance 

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17th Apr 2019 20:41

I take it you mean prepaid expenses. Or do you also mean accrued income?

Typical types of expenditure which are commonly paid in advance are insurance premiums, business rates and rent. There are no types of business that are more likely to have more of these than other types of business.

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to johngroganjga
17th Apr 2019 20:55

Hi John,
Thank you for your message. You are correct. The question is about prepaid expenses. I need to show an example of business that has significant amount of prepaid expenses and what those are.... I’m struggling to come up with ideas :(

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17th Apr 2019 20:41

I think you need to explain what you mean by prepaid assets. One normally talks about prepaid revenue expenses although prepayment treatment can also apply to capital expenditure.

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to Wilson Philips
17th Apr 2019 20:57

Hi Wilson,
Sorry I didn’t explain myself properly. The question is about prepaid expenses. I need to show an example of business that has significant amount of prepaid expenses and explain what those are.... I’m struggling to come up with ideas :(

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to Anastasia G
17th Apr 2019 21:05

One example would be rent paid in advance.

Let’s say rent of £6000 is paid on 1 March for the 3 months ending 31 May and the business year end is 31 March.

At 31 March £4000 of the rent paid relates to a future period and so would be recognised as a prepayment on the balance sheet.

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18th Apr 2019 04:46

@ Anastasia G (OP),

“Prepaid Assets” is a term which appears to be used in USA more often than in Britain, where we normally use the term “Prepayments” (or “Prepaid Expenses”).

The expenses most often “prepaid” (ie PAID in an accounting period in respect of expenses which RELATE TO the following period) are Rent, Rates and Insurance.

Consequently, the answer to your opening question (“What type of business . . . “) is simply any business which operates from business PREMISES.

Basil.
EDIT. My above post was prepared before I saw your 20.57 post.

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to fawltybasil2575
17th Apr 2019 21:14

Basil,
You are 100% right. I’m doing a virtual course with the Harvard Business School so the terms professors are using are American

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to fawltybasil2575
17th Apr 2019 21:17

Basil,
You are 100% right. I’m doing a virtual course with the Harvard Business School so the terms professors are using are American

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By Jdopus
to Anastasia G
18th Apr 2019 09:43

If you don't mind the question Anastasia - why are you following a US course if you're UK based? It might be a mistake given the legal differences between how the two tax authorities treat different things.

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to Jdopus
18th Apr 2019 11:13

Your question makes total sense. I am not planning to practice accountancy in the UK. Financial Accounting module was in addition to the one that I am doing which is Business Analytics. It wasnt possible just to take the Analytics course so here I am :)

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